As insurers strive to achieve their digital transformation objectives, Ram Menon, KPMG's Global Insurance Deal Advisory Leader, sat down with Chris Wei, Global Chairman of Aviva Digital and Executive Chairman of Aviva Asia to talk about digital, M&A and deal sourcing.
Ram Menon: Why is digital transformation such an imperative for Aviva today?
Chris Wei: We see three big value drivers for digital in the industry. The first is the behavioral insight that is now available to us, which is often more powerful than the predictive elements we've used in the past. The second is the customer interaction; digital provides us with a license to engage customers on a daily basis. And we also see digital as a way to embed emerging tools that will help us do our jobs better. From real-time trackers on your skin for diabetes management through to next generation telematics on your phone that can predict accidents and then make claims a frictionless experience, we see digital as a way to help us evolve rather than as a disruption to overcome.
Ram Menon: You've been vocal about the role that the tech giants play and the outsized advantages they have -- how do you overcome that? Do you partner with them and fall into the fold or is there a defense against that?
Chris Wei: I think it's both. Given the environment, I don't think we can afford to not play with the big boys. They have a significant data advantage that allows them to build robust functionality into everything they do. And because of that frictionless foundation, they could do some very disruptive things like break down insurance coverage into very small components. So customers would not need to buy annual policies or spend thousands of dollars to cover a short-term risk. When you apply that to a billion users, you've got a huge opportunity in front of you. It's also about being good enough that the big boys want to play with you. The fundamental paradigm is certainly being disrupted and so we've chosen to partner as opposed to hope for the best. But, for the moment, the big digital players haven't quite figured out how to do insurance because that's not their secret sauce.
Ram Menon: We're seeing lots of activity in the venture capital space, and insurers are doing more deals with technology companies than ever before. How do you ensure they add value to your digital agenda?
Chris Wei: Before you can think about doing deals to drive innovation, your whole organization needs to be thinking differently. They need to realize that the existing paradigm needs to evolve. I also don't think it's only one person's job or one department's job; transformation only happens if people across the organization -- particularly those that aren't decision makers -- are aware of what the organization wants to achieve. The bigger challenge is in aligning interests between ventures and innovation. Ventures teams are often charged with innovation and digital, and they go out sourcing start-up opportunities but don't have clear executive sponsorship from the business unit side. I think the key to making this work is to get executives on the ship early and to determine clarity of business intent and prioritization. That way, when innovations are captured, implementation is going to work.
Ram Menon: We're also starting to see early signals of insurers looking at start-ups as acquisition targets. How is that changing the way Aviva approaches deal sourcing?
Chris Wei: My experience suggests that a lot of digital start-ups are on a very short-term timeframe because they've got funding for 3 months and need to demonstrate the next proof of concept. So, unlike traditional deal making where you could take 6 to 9 months going through sourcing, valuation and diligence, you need to completely rethink the process for acquiring start-ups. It's not just thinking differently about valuation; it's also being really clear about integration and where we're going to extract synergies from the partnership. Insurers have to align the end-to-end sourcing mechanism for it to be a really efficient value-added exercise. And that is not easy to do in a traditional organization. There's a lot of education required, and a lot of engagement needed. But if the organization is not clear on which bits they want to go after, then the team will spin its wheels and become extremely distracted on projects that, ultimately, may not bear fruit.
Ram Menon: Can you walk us through a recent deal and how it is adding value?
Chris Wei: Sure. Our ventures team recently found a start-up that was doing something very unique in the SME space and knew this was a compelling area for us. We wanted to achieve higher penetration into the SME market, but the only way to do that cost effectively from a commission perspective is through digital. And that meant we needed to rethink how we engaged with that audience. We made an investment into this business. Then we bolted on our employee benefits platform and simplified the journey to make it relatively frictionless. Now we're looking at other bolt-on value-adds such as helping them manage their corporate travel. It's been a really valuable journey.